Angry Obama Threatens Veto of Debt Plan Without Huge Tax Hikes

President Barack Obama set up another clash with Republicans on Monday by proposing $1.5 trillion in new taxes aimed primarily at the wealthy as part of a $3 trillion package to shrink the national debt.

Congress' senior Republican, House Speaker John Boehner, has said no such legislation will pass the House.

The populist pitch in Obama's speech, however, could offer political benefits ahead of next year's elections. The plan could appeal to Americans, many of whom believe the deficit cannot be reduced by spending cuts alone, according to some polls. It also could energize Obama's fellow Democrats, who have been clamoring for the president to take tougher positions against Republicans.

"We can't just cut our way out of this hole," the president said in a speech at the White House. He noted that he is among the millionaires who should face higher tax rates than the middle class and said: "It's only right we ask everyone to pay their fair share."

Obama's recommendation to a joint congressional committee served as a sharp counterpoint to Republican lawmakers, who have insisted that tax increases should play no part in taming the nation's escalating national debt. The new taxes predominantly would hit wealthy Americans, ending their Bush-era tax cuts and limiting their deductions.

The core of the president's plan totals just more than $2 trillion in deficit reduction over 10 years. It combines the new taxes with $580 billion in cuts to mandatory benefit programs, including $248 billion from Medicare, the health insurance program for the elderly. It also counts savings of $1 trillion over 10 years from the withdrawal of U.S. troops from Iraq and Afghanistan.

The administration also counts savings of $1 trillion over 10 years from the withdrawal of troops from Iraq and Afghanistan.

The deficit reduction plan represents an economic bookend to the $447 billion in tax cuts and new public works spending that Obama has proposed as a short-term measure to stimulate the economy and create jobs. He is submitting his deficit fighting plan to a special joint committee of Congress that is charged with recommending deficit reductions of up to $1.5 trillion over 10 years.

Republicans already were lining up against the president's tax proposal before they even knew the magnitude of what he intended to recommend.

"Class warfare may make for really good politics, but it makes for rotten economics," Paul Ryan, chairman of the House Budget Committee, said Sunday in reaction to an Obama tax proposal to impose a minimum tax rate on wealthy filers.

Former President Bill Clinton dismissed Republican claims that the tax on the wealthy would discourage jobs creation and hamper economic growth.

"Republicans in Washington always say the same thing," Clinton said on NBC's "Today" show on Monday.

Clinton called their argument an insult to wealthy Americans, including many who don't mind paying more.

One of Obama's proposals would set a minimum tax on taxpayers making $1 million or more in income. Obama called the measure the "Buffett Rule" for billionaire investor Warren Buffett, who has spoken of the unfairness that he pays taxes at a lower rate than that paid by his secretary.

At issue is the difference between a taxpayer's bracket and the effective rate that taxpayer pays. Millionaires face a 35 percent tax bracket, while middle income filers fall in the 15 or 25 percent bracket. But investment income is taxed at 15 percent, and Buffett has complained that he and other wealthy people have been "coddled long enough."

Republicans are firmly rejecting any tax hikes to raise revenues. Many Democrats see that as a sign for Obama to stop trying to compromise with Republicans over tackling the debt, and instead to fight for the voters who put him office.

"These things are critical to the base," said Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities in Washington and a former economic adviser to Vice President Joe Biden.

Obama, under fire from Democrats to defend Medicare and Medicaid healthcare programs as he seeks to boost flagging support before next year's election, will demand that all Americans share the burden of controlling the budget.

"He will veto any bill that takes one dime from the Medicare benefits seniors rely on without asking the wealthiest Americans and biggest corporations to pay their fair share," a senior administration official told reporters on Sunday.

Medicare, for elderly and disabled Americans, and Medicaid for the poor, are viewed by analysts as the biggest contributors to long-term U.S. deficits, which many voters see as a key issue in the election.

The U.S. budget deficit in 2011 is expected to be about $1.3 trillion.

The supercommittee of six Democratic and six Republican lawmakers is seeking at least $1.2 trillion in new budget savings over 10 years by Nov. 23. That is on top of $917 billion in 10-year savings agreed in an August deal to raise the U.S. debt limit.

The supercommittee can ignore Obama's recommendations, which are an opening bid in a three-month marathon to find deficit savings that Congress must approve by a Dec. 23 deadline to avoid automatic cuts in federal spending.

Republican leaders are likely to reject them outright.

"It is disappointing the president has nothing but a fresh slogan for the same job-killing small business tax hikes opposed by bipartisan majorities in Congress," said Michael Steel, a spokesman for top House Republican John Boehner.

Politicians and the business world were scrutinizing Obama's proposals.

Investors want evidence that the political process in Washington is capable of tackling the towering U.S. deficit and the country's mounting debts, after ratings agency Standard & Poor's cut the U.S. AAA rating in August.

A second White House official said the package of proposals add up to over $4 trillion in 10-year deficit savings when the cuts from the August debt deal were taken into account.

Obama, whose approval numbers have slumped over his handling of the economy amid 9.1 percent unemployment and mounting fear of another U.S. recession, is fighting to regain his political footing as the election campaign heats up.

Last week, he proposed a $450 billion jobs plan to spur hiring, and promised that would be paid for from some of the savings in his recommendations to the super committee.

These include $1.5 trillion in savings over 10 years from changes to the tax code, and over $1 trillion in savings from drawing down troops in Iraq and Afghanistan. Critics are likely to dispute this saving because the troops are coming home anyway and this is not a new policy proposal.

The recommendations will include cuts of $580 billion in so-called mandatory spending, including $248 billion in Medicare savings. The bulk of those savings would come from "reducing overpayments," officials said, which would hit payments to health care providers.

Obama's proposals left out a number of cuts to Medicare, Medicaid, and Social Security that he had put on the table during summer negotiations on a so-called "grand bargain' with Republicans that ultimately went nowhere.

The current plan does not included an increase in the age at which Americans become eligible for Medicare cover, to 67 from 65 years, that was discussed over the summer.

This would make a big contribution to cost savings but is toxic to many Democrats, who say it would significantly increase hardship for the elderly poor.

"If you get into an election year and you are still trying to reassure your base, you're in a really tough spot," said William Galston, a senior fellow at The Brookings Institution in Washington. "If the president starts a big controversy about Medicare benefits [now], then that could very well be the straw that breaks the base's back."